Ikea Strategic Analysis

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IKEA is the world’s largest furniture retailer of ‘knock down’ furniture with 300 stores in more than 35 countries. It was founded by Ingvar Kamprad of southern Sweden whose main innovative idea was ‘to offer home furnishing products of good function and design at prices much lower than competitors by using simple cost-cutting solutions that did not affect quality of products so that as many people as possible will be able to afford them. ( www.ikea.com). He used every opportunity to reduce costs without compromising on ideas and quality.

IKEA used design, their main competency, to secure the lowest possible price by starting design with a functional need and price then using knowledge of innovation and low cost manufacturing processes to create functional products. They created a homogenous range of products that is attractive to consumers everywhere in the world regardless of the differences in cultures and geographical location. They were able to achieve and maintain low cost by combining benefits of mass consumption and production with continuous innovative style and functionality. This enabled them to quickly respond to changes in the world and yet still maintain a sense of excitement and modernity.

IKEA combined elements of a concept of target market, product, price, distribution and promotion to strengthen its positions within a very competitive market where customer demand is increasing and there is growing environmental awareness amongst consumers. They used their strengths of innovative designs and low prices of high quality to take advantage of opportunities such as globalisation, political-economical and social demographical factors, overcame their weaknesses of limited market research into new markets and threats of entry by retailers restricting access to suppliers to quickly learn, adapt, maintain and realize its vision to create a better everyday life for many people.

IKEA target market is well educated, liberal, white collar young people with limited disposable income that are now starting up their homes and expanding their families but have a sense of style and a desire for beauty and modernity.

Its products are homogenous and sold all over the world. According to Czinkota et al (2000: 357) IKEA ‘offers products exceeding 12,000 items in an enormous range, from plants to pots, sofas to soup spoons, and wine glasses to wallpaper.’ To achieve this transnational strategy is used whereby the firm develops to produce and sell somewhat unique and somewhat standardized products in different markets. It is more difficult to manage and expensive to implement but is the best international strategy to facilitate learning which is a clear vision and philosophy of the founder, Ingvar Kamprad. (Ireland et al, 2006: 199).

IKEA’s core function is design as they do not manufacture but has a network contracted manufacturer base of 1800 suppliers in 55 countries. Key to their success in entering different markets globally are these alliance networks as they encountered resistance of barriers to entry in to these foreign markets by existing retailers. It also helped them to focus on their core competencies such as design, marketing, logistics and distribution/retailing and outsourced manufacturing, an area which they possessed no expertise.

These network alliances formed according to Hitt et al (2009: 329) is a group of firms that has been developed to create value by participating in multiple cooperative arrangements. An effective strategic network facilitates discovering opportunities beyond those identified by individual network participants. This network as was the case with IKEA became a source of competitive advantage that created value for all involved that was difficult for competitors to duplicate. IKEA was the strategic centre firm that provided technical assistance to their suppliers to reduce cost and improve quality by bringing up production to world standards.

IKEA placed a lot...
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